1) market portfolio is unobservable (can only use an imperfect market proxy which doesn't include non-traded assets/ human capital) 2) there may not always be tangency portfolio (mean-variance efficient)

9 of 20

Variance/ SD (tutorial 3)

.

10 of 20

Covariance (tutorial 3)

.

11 of 20

CML (total risk) or SML (systematic risk)

CML: when portfolio is ones only asset holding (>90% wealth/ not WDP/ lots of idiosyncratic risk)/ SML: when portfolio represents one of many different asset holdings (